GAO-02-223R

United States General Accounting Office

Washington, DC 20548

B-289306

November 16, 2001

The Honorable Paul S. Sarbanes

Chairman

The Honorable Phil Gramm

Ranking Minority Member

Committee on Banking, Housing, and Urban Affairs

United States Senate

The Honorable Michael G. Oxley

Chairman

The Honorable John J. LaFalce

Ranking Minority Member

Committee on Financial Services

House of Representatives

Subject: Securities and Exchange Commission: Books and Records Requirements for

Brokers and Dealers Under the Securities Exchange Act of 1934

Pursuant to section 801(a)(2)(A) of title 5, United States Code, this is our report on a

major rule promulgated by the Securities and Exchange Commission (SEC), entitled

“Books and Records Requirements for Brokers and Dealers Under the Securities

Exchange Act of 1934” (RIN: 3235-AH04). We received the rule on November 2, 2001.

It was published in the Federal Register as a final rule on November 2, 2001. 66 Fed.

Reg. 55818.

The final rule amends the SEC’s broker-dealer books and records rules. The rule

clarifies and expands recordkeeping requirements with respect to purchase and sale

documents, customer records, associated person records, and customer complaints.

In addition, the rule expands the types of records that broker-dealers must maintain

and require broker-dealers to maintain or promptly produce certain records at each

office to which those records relate.

Enclosed is our assessment of the SEC’s compliance with the procedural steps

required by section 801(a)(1)(B)(i) through (iv) of title 5 with respect to the rule.

Our review indicates that the SEC complied with the applicable requirements.
Page 2 GAO-02-223R

If you have any questions about this report, please contact James W. Vickers,

Assistant General Counsel, at (202) 512-8210. The official responsible for GAO

evaluation work relating to the subject matter of the rule is Thomas McCool,

Managing Director, Financial Markets and Community Investments. Mr. McCool can

be reached at (202) 512-8678.

signed

Kathleen E. Wannisky

Managing Associate General Counsel

Enclosure

cc: Ms. Margaret H. McFarland

Deputy Secretary

Securities and Exchange

 Commission
GAO-02-223R

ENCLOSURE

ANALYSIS UNDER 5 U.S.C. § 801(a)(1)(B)(i)-(iv) OF A MAJOR RULE

ISSUED BY THE

SECURITIES AND EXCHANGE COMMISSION

ENTITLED

"BOOKS AND RECORDS REQUIREMENTS FOR

BROKERS AND DEALERS UNDER THE

SECURITIES EXCHANGE ACT OF 1934"

(RIN: 3235-AH04)

(i) Cost-benefit analysis

The SEC believes that the final rule will have an annual cost of between $78.2 and

$84.3 million in the first year and between $52.5 and $58.6 million per year thereafter.

The benefits of the final rule, which the SEC believes justifies the costs, are

decreased investor losses; decreased costs of litigation and arbitration for brokerdealers, states, and customers; and decreased examination costs for broker-dealers

and state examiners. The SEC thinks this decrease in costs will generate an

economic benefit of more than $84.3 million per year.

(ii) Agency actions relevant to the Regulatory Flexibility Act, 5 U.S.C. §§ 603-605,

607, and 609

The SEC prepared an Initial and Final Regulatory Flexibility Analysis in connection

with the proposed and final rules, respectively. The analyses meet the informational

requirements of the Act.

In discussing the alternatives considered to reduce the impact on small entities, the

SEC concludes that having a different standard for information collection and

recordkeeping for small entities would be inconsistent with the level of investor

protection and information that should be provided.

(iii) Agency actions relevant to sections 202-205 of the Unfunded Mandates Reform

Act of 1995, 2 U.S.C. §§ 1532-1535

As an independent regulatory agency, the SEC is not subject to title II of the

Unfunded Mandates Reform Act.

(iv) Other relevant information or requirements under acts and executive orders

Administrative Procedure Act, 5 U.S.C. §§ 551 et seq.

The final rule was issued using the notice and comment procedures contained at

5 U.S.C. 553. On October 22, 1996, the SEC published a Notice of Proposed

Rulemaking in the Federal Register. 61 Fed. Reg. 55593. Following receipt of
Page 2 GAO-02-223R

comments, a reproposal was published on October 2, 1998. 63 Fed. Reg. 54404. The

SEC received 115 comments in response and discusses them in the preamble to the

final rule.

Paperwork Reduction Act, 44 U.S.C. §§ 3501-3520

The final rule contains information collections that are subject to review by the

Office of Management and Budget under the Paperwork Reduction Act. The

preamble to the final rule contains the information required by the Act including the

estimated burden hours. The SEC has submitted the proposed collections to OMB

for approval.

Statutory authorization for the rule

The final rule is promulgated pursuant to the authority contained in the Exchange

Act, including sections 17(a) and 23(a).

Executive Order No. 12866

As the rule is promulgated by an independent regulatory agency, it is not subject to

the review requirements of the order.